THE HIDDEN COST OF FRAUD

For many businesses that are victims of fraud, the amount stolen can often be dwarfed by the cost of the downstream impact. Whether it is theft of company funds by a trusted employee in the finance department, hacking of personal data from customer records by overseas hacking groups, or employees stealing inventory from a warehouse, all fraud has significant costs beyond the value of that which has been defrauded.

More than a third of companies across the globe have experienced incidents of fraud during the last three years, with about a quarter of that fraud being cyber crime. Of greater concern is that experts suggest that these numbers are likely understated, with cyber crime particularly susceptible to such under-reporting.

What might appear on the front page of the newspaper can be misleading. The impression is often given that there has been a sudden revelation of the fraud. However, many frauds are initially thought to be errors, or, at worst, a minor theft. With the report of an apparently insignificant fraud, senior management of many companies will not engage all of the resources available to them. Unfortunately, and all too often, the initial report will balloon into a discovery that it is ‘just the tip of the iceberg’.

When the seriousness is fully realised, the ability to intervene early has passed and the resulting impact to the business’s reputation is aggravated.

So what are these hidden costs?

Apr-Jun 2015 Issue

AIG